Intraday Market Thoughts

What to Make of the Dollar Creep

by Adam Button
Mar 21, 2016 23:21

The US dollar was the top performer on Monday and has been the best performer since the end of day on FOMC day. Is it a signal that Fed concerns are overrated or simply a technical bounce? Australian house prices, RBA comments and Japanese manufacturing data are due later. A new Premium Video will be posted and sent to members at the start of the Tuesday Tokyo, revisiting the 2008Parallel and tackling the technical dynamics of the AAII Investor Sentiment vs the S&P500.

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What to Make of the Dollar Creep - Nky Shanghai Mar 21 (Chart 1)

USD edged higher across the board to start the week in light trading. USD/JPY rose for the second day in a slow rally to 112.16 from 111.50.

At this point, most of those who missed the initial dollar drop on the Fed headlines and chased dollar shorts underwater. The dollar continued to fall the day after the Fed but has now nearly recovered.

The problem for dollar bears is that the Fed remains relatively hawkish. The ECB and BoJ are delivering more stimulus, Brexit concerns are hitting the UK and commodity currency central banks have an easing bias. In addition, Treasurys offer better yield and the US stock market is up 10% since mid-February.

On Monday, Fed Presidents Lockhart and Williams both delivered speeches where they said rates could rise as soon as April. The market largely dismissed them but they reemphasized that the Fed isn't worried about the domestic economy; they see the risks abroad.

The 1.1200/20 range is an important zone to watch in EUR/USD in the days ahead. The pair is trading at 1.1243 and a fall below that zone would break into the Fed move. The lesson in all this is that the US dollar might not need the Fed's help to sustain gains.

Then again, it's early and the dollar retracement has come in a quiet environment. With Japan returning from holiday on Tuesday, we expect a more lively market.

Asia-Pacific newsflow may help. At 0030 GMT the Australian Q4 home price report is due and expected to show housing prices up 8.5% y/y but flat in the quarter. It may not be long before Stevens gets to respond to the latest developments as he speaks at 0515 GMT and the RBA's Edey is also on a panel at 0045 GMT.

At 0200 GMT, the Nikkei Japan PMI for manufacturing is due. It's expected to rise to 50.5 from 50.1. It will be followed at 0430 GMT by the all industry activity index for Feb, which is forecast to rise 1.9%.

The BOJ's Nakaso spoke Monday and said officials want time to evaluate the latest moves. That's telling; it means that Kuroda can attempt to jawbone but it will be months before there is any real threat of action. The 110.67 to 112.00 range is key for now.

Act Exp Prev GMT
HPI (JAN) (m/m)
0.5% 0.4% Mar 22 13:00
Fed's Evans Speech
Mar 22 17:30
RBA Assist Gov Edey Speech
Mar 22 0:45
RBA's Governor Glenn Stevens Speech
Mar 22 5:30
Markit Manufacturing PMI (MAR) [P]
51.3 Mar 22 13:45
Nikkei PMI Manufacturing (MAR) [P]
50.1 Mar 22 2:00
All Industry Activity Index (JAN) (m/m)
1.9% -0.9% Mar 22 4:30

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